Breaking News This Morning ...
Earnings: Citigroup, Key Corp, Goldman Sachs
New York Times
Former Fed chairman Ben Bernanke is set to take a job as an adviser to hedge fund Citadel Investment Group. Banks had recruited Bernanke, he told the paper (without naming his suitors), but he declined their offers. It's a well-worn path between the Federal Reserve and the private sector, particularly hedge funds. Former Fed chair Alan Greenspan worked as a consultant to hedge fund Paulson & Co., as well as Deutsche Bank and PIMCO. Former Fed governor Jeremy Stein took a job at hedge fund BlueMountain Capital Management. Although Bernanke told the Times in an interview that he's sensitive about the revolving-door issue, he said he chose to sign up with a hedge fund because they aren't regulated by the Fed and he won't be doing any lobbying.
Wall Street Journal
Bank of America CEO Brian Moynihan gave a helpful explanation why his bank's first-quarter trading revenue lagged that of JPMorgan Chase. The main reason: B of A trades different things than JPMorgan. A high degree of volatility in foreign-exchange trading and other rate products trading helped kickstart JPMorgan's investment bank unit. B of A, on the other hand, focuses more on the trading of credit products and mortgage-backed securities, Moynihan explained during a Wednesday conference call with analysts. Those products had a weaker quarter. During the call, NAB Research analyst Nancy Bush asked Moynihan, "Have you derisked the trading desk to the point where you can't really take full advantage of the volatility in markets?" And he responded, "It's not an existential question at all."
While Moynihan's explanation may have provided a glimmer of hope to investors that B of A's trading could turn around in the future, another facet of the Charlotte, N.C., bank's business doesn't appear to have a silver lining, "Heard on the Street" said. B of A's legacy assets appear set to keep a lid on the bank's returns now and in the foreseeable future. B of A's capital to support its legacy assets rose to $24 billion from $17 billion a year ago. The huge figure is one main reason the company's return on equity was 5.35%, "so far below a 10% theoretical cost of capital that there can be little question that B of A is currently destroying value."
Fannie Mae and Freddie Mac's regulator must be doing something right: Its recent decision on mortgage fees is making a lot of people mad. The Federal Housing Finance Agency plans to order Fannie and Freddie to slightly cut fees on riskier mortgages. That decision won't please the housing advocates who wanted deeper cuts, and at the same time will anger conservatives who wanted higher charges. However, Moody's Analytics economist Mark Zandi said the compromise "sounds like they're maintaining the status quo, roughly speaking, and that feels right to me."
On the subject of housing, how would you like to live in a shipping container? A developer in Newark, N.J., plans to convert containers into condos.
Comparisons between the Fed's current conundrum of when to raise interest rates to previous economic crises in the U.S. in 1937 and Japan in the 1990s fall flat, Stanley Druckenmiller and Christian Broda of Duquesne Capital Management write in an op-ed column. The Fed is worried that the risk is greater in raising rates too early, rather than too late, as both of the historical examples show that moving too early was a mistake. But the conditions from those past crises don't apply today. And the Fed is now mistakenly following the "Bernanke doctrine" and the "growing sense of unlimited power of monetary policy."
Speaking of when interest rates will rise, the International Monetary Fund has warned the Fed against springing an early surprise on the economy. The number of risks has increased since last year, as the dollar has strengthened, the IMF said in its semiannual report on threats to the financial system. If the Fed pops the cork on a rate hike earlier than investors expect, it may cause a "rapid jump in long-term interest rates" and an uptick in volatility.
It turns out that one of the directors of collapsed hedge fund Heather Capital, a man with the distinctive name of John Bourbon, is a former financial regulator in the Cayman Islands and the Isle of Man. Bourbon also wrote a book about corporate governance, risk assessment modeling and compliance modeling.
Financial Times
The paper examines the plans set forth by Sen. Elizabeth Warren, D-Mass., to regulate big banks, a topic American Banker has covered extensively this week, in a cheat sheet and a more in-depth piece.
Mobile-payments technologies are helping move people out of the ranks of the unbanked, the World Bank reported, based on the results of a survey. More than 700 million people have opened bank accounts via mobile platforms over the past three years. Some of the nations that have seen big increases in mobile-enabled bank-account holders include Côte d'Ivoire, Kenya, Somalia, Tanzania and Uganda.
BNP Paribas will still be allowed to manage U.S. retirement plans, despite the $8.9 billion fine it paid for violating U.S. sanctions against the Sudan and other countries.
Elsewhere ...
Bloomberg: General Electric's sale of its GE Capital assets could set off a bidding war among multiple banks, money managers told Bloomberg. JPMorgan Chase and U.S. Bancorp have both already said they will take a look at some of what GE is selling. Citigroup is a possible bidder for GE Capital's U.S. commercial lending and leasing business, although it will likely face competition from private-equity firms like Blackstone Group and KKR. Toronto-Dominion Bank should also take a look at those assets, one money manager said.
The Jersey Journal: Investors Bancorp plans to open a branch of its Investors Bank at the Hub shopping center in Jersey City, N.J. It will be the first bank branch at the Hub in five years, since Bank of America closed its branch there in January 2010. A full-service bank branch is something that community leaders have said has been needed for the low-income neighborhood. Kevin Cummings, Investors Bank's CEO, grew up in Jersey City in the Hub neighborhood.
